The Myths And Truths of Bankruptcy

According to records accumulated by the US Bankruptcy Courts, Approximately 1,037,398 non-business bankruptcies were filed in the U.S. in 2013, down from 1,179,551 in 2012.

Many people (including many in congress) think that filing bankruptcy means the person must have bad credit card spending habits. In some cases this is true but most people who will file for bankruptcy protection, do so for myriad other reasons. Let’s take a look at a primary myth we hear┬áconcerning these consumer bankruptcy filings.

Myth: People who file for bankruptcy are financially irresponsible.

According to Walter W. Miller Jr., who teaches bankruptcy law at Boston University School of Law, “There's always going to be some kind of abuse, but it's far more likely that people run into very serious personal problems in one of three areas: losing their job, going through a divorce, or suffering a serious illness"

The Actual Truth

The 4 main causes of bankruptcy filings in the U.S. today are;

1. Catastrophic medical expenses and the inability to return to work immediately after a major medical incident.(20 percent of American families had problems paying medical bills according to a 2011 survey by the Centers for Disease Control and Prevention)

2. Long-term unemployment,(according to the Bureau of Labor Statistics, more than 5.2 million Americans spent six months or longer unemployed in 2012).

3. Divorce and the legal fees associated with it, plus the cost of running two households following a divorce.

4. Predatory mortgage loans which leave homeowners suddenly way upside down in their homes and unable to make ever-increasing mortgage payments.